Statistics Canada will publish the Labour Force Survey (LFS) report for the month of December on Friday morning. The robust pace of global economic growth contributed to the net addition of 390,000 jobs in Canada since November 2016, the strongest 12-month period of job creation in the current business cycle (see chart). Full-time positions soared by 441,000 during this period, the best performance since 1999.
During this 12-month period, job creation was relatively well distributed in cyclical industries, such as manufacturing (+91K), construction (+50K), retail/wholesale trade (+82K), transportation (+50K), finance and real estate (+29K) and professional services (+77K). On a regional basis, job creation has been concentrated in Ontario (+181K), B.C. (+92K) and Quebec (+78K). Total employment also rebounded in Alberta since November 2016 (+34K), leaving a meagre 5,000 for the remaining six Canadian provinces.
The global growth momentum should remain supportive for employment in December, extending the current uninterrupted stretch of job creation to 13 months. The significant 80,000 net job creation registered during the month of November obviously restrains the chances of another massive gain in December. Overall, we expect a statistically insignificant 5,000 month-over-month improvement in total employment (out of 18.6 million Canadian workers). Nonetheless, the 3-month (42K in November) and 6-month (34K in November) moving averages for job growth will likely remain in the fast lane.
In contrast to what we observed during most of 2017, the rise in labour force participation is poised to outpace job creation in December. This is expected to lead to a painless 0.1pp increase in the unemployment rate (to 6.0%). Even if the unemployment rate declined at a faster-than-usual pace during the last 12 months (by 0.9pp to 5.9%, matching a 4-decade low), we lean in favour of the Bank of Canada’s labour market indicator suggesting that conditions are not as tight as the classical unemployment rate metric suggests (see chart).
For instance, an elevated 20% of unemployed Canadians have been without a job for at least six months. Also, Canadians are working about the same number of hours now (33h per week) as they were at the beginning of the current business cycle. Furthermore, the number of part-time workers citing business conditions as a factor preventing them from finding full-time positions is still higher today than before the 2008 global financial crisis. Combined with slow-changing structural factors, such as automation and globalization, these soft spots appear to explain the absence of sustained wage pressures. Granted, the pace of growth in average hourly earnings (AHE) of employees accelerated during the second half of 2017 (to 2.7% year-over-year in November), but a more sustainable increase will be required to facilitate further removal of monetary stimulus by the Bank of Canada in 2018. Thus, markets should pay attention to the December AHE number, which will also be reported in the LFS report this Friday.
As for our 2018 labour market forecasts, we expect the country to add about 350,000 jobs during the next 12 months. This would bring down Canada’s unemployment rate to 5.8% by the end of 2018.
